An impossibility of performance clause addresses situations where a party becomes unable to fulfill its contractual obligations due to circumstances beyond its reasonable control—such as death, destruction of essential assets, or legal prohibition. This clause typically excuses a party from performance and may limit liability when performance becomes objectively impossible rather than merely difficult or expensive. The clause is critical because it distinguishes between a party's failure to perform (which constitutes breach) and genuine inability to perform (which may be excused). Without such a clause, a party could be held liable for damages even when performance is literally impossible, creating unfair liability exposure. This is particularly important in long-term contracts where unforeseen events could render performance impossible.
When reviewing this clause, ensure it clearly defines what circumstances qualify as "impossible" (objective impossibility, not mere impracticability) and requires the affected party to provide prompt written notice and demonstrate good faith efforts to mitigate or find alternative performance methods. Clarify whether the clause applies only to the obligated party or both parties, and specify the consequences—whether the contract terminates, is suspended, or continues with modified terms. Consider adding a requirement that the party claiming impossibility must prove the event was unforeseeable and not caused by its own negligence. Negotiate for reciprocal application so both parties receive equal protection.
Frequently Asked Questions
What does this clause mean in simple terms?
An impossibility of performance clause addresses situations where a party becomes unable to fulfill its contractual obligations due to circumstances beyond its reasonable control—such as death, destruction of essential assets, or legal prohibition.
Why should I care about this clause?
This clause typically excuses a party from performance and may limit liability when performance becomes objectively impossible rather than merely difficult or expensive.
What are my options?
The clause is critical because it distinguishes between a party's failure to perform (which constitutes breach) and genuine inability to perform (which may be excused).
How does this affect small businesses?
Without such a clause, a party could be held liable for damages even when performance is literally impossible, creating unfair liability exposure.